Collinson FX Market Commentary- August 2, 2013 - ANZAC's dragged down

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Central Banks continue to drive markets with the ECB President Draghi leaving stimulus in place and committed to extended period of low interest rates. He also noted that the EC was through the worst of it and had turned the corner. The EUR held steady, trading 1.3215 and the GBP 1.5130 after Central Bank expansionary monetary policies were balanced out by the Fed. Bernanke has committed to continuance of QE Infinity undermining talk of tapering in the near future.

Economic indicators remain positive with the ISM Manufacturing Index rising to 55.4 from 50.9. Weekly Jobless Claims fell and Non-Farm Payrolls are expected to add up to 200,000 Jobs pushing the Unemployment rate lower. The AUD has remained vulnerable trading 0.8940 after RBA Governor Stevens comments regarding the state of the economy and the fiscal ineptitude of the chaotic Labour Government.

The KIWI also has been dragged lower, trading around 0.7880, after all the upheaval across the Tasman and Global demand under a question mark. Equities continue to be funded by Central Banks so the bubble continues to expand. Monetary largesse will have massive consequences sooner rather than later!

The Fed left the QE Infinity unchanged and the positive news on the economic front reinvigorated the 'tapering' prospects. Low inflation and GDP growth improving, has now insured that Bernanke will commence tapering. The tapering is only a cut to increasing the balance sheet well beyond any expectations and thus will have little impact.

It is the mind-set that is being reinforced. The Employment data continues to improve and the Dollar looks to a recovery. The EUR held 1.3295 and the GBP 1.5200. US GDP improved to 1.7% and employment improvement lend to the end of QE infinity thus undermining equities and boosting the Dollar.

The AUD slipped below the important floor of 0.9000 and the KIWI broke big, big 0.8000. This is new territory and does not lend to much positivity. The good news is that we may be in for the first female head of the Fed! Things can only improve!

Markets were treading water in anticipation of the FOMC meeting scheduled for a decision tomorrow. This should be a big day, with the all-important Fed meeting and crucial GDP data and the ADP Jobs Report. These three events, individually have the ability to move the market, so any uniformity of results could result in a big move.

The Fed is expected to begin to taper QE infinity by September so confirmation of this may have already been built in. Flagging GDP and falling Job prospects could signal a reversal of this tapering prospect but weakness and commitment to easing would bring negative impact to equities, commodities and currencies (except for the USD)! The USD was creeping north in the lead up to the eagerly awaited announcement with the EUR 1.3250 and the GBP 1.5240.

The AUD took a bath yesterday, falling from 0.9200 to 0.9160 after Building Permits collapsed by 6.2% for the month and 13% annually! The economic news and the plunge in mining investment sparked dovish comments from the RBA Governor Stevens. The flagging economy may attract a rate cut at the next Central Bank meeting which undermined the Ozzie!

The KIWI lost some shine, after being tarred by the same brush, dropping below 0.8000 but blowing through 0.8800 in the cross v it's troubled trans-Tasman cousin.

All eyes on the Fed and GDP with ECB and BofE still to come this week! Non-Farm Payroll will ice the cake Friday!

Markets opened the new week with a hang-over from recent equity gains. US Markets were disappointed when the Pending Homes Sales contracted by 0.4% sending mixed signals in an industry considered a leading indicator. This week is all about Central Banks with the FOMC meeting tomorrow and ECB and Bank of England later in the week.

The other major driver for markets will be the Employment reports culminating with Non-Farm Payrolls. Tapering is expected to start in September and there has been plenty of warning so whether this impacts, we will have to see.

The Dollar was steady with the EUR 1.3250 and the GBP 1.5350. Commodities were mixed and expectations of Dollar gains have pushed the AUD back below 0.9200 and the KIWI barely holding 0.8000.rrencies and commodities will be driven by Central Bank action, commentary and market perceptions. It will be a huge week and expectations are for volatility

Markets remained flat with debate raging over whether the Fed will commence tapering of QE Infinity. Consumer Confidence surged to 85.1 from 83.9, reflecting a growing confidence in the banal economic recovery which could signal the 'beginning of the end' of Monetary Expansionism.

The week ahead holds prospects of huge moves in Currencies and Equities with Central Banks from the US and Europe taking center stage. The direction of Monetary policy is the major driver of market direction. If the Fed indicates a propensity to instigate a taming of QE then we may see the start of a long term rise in the US Dollar. It would probably impact equities negatively with the reduction in the avalanche of money.

The EUR has reached 1.3275 and the GBP 1.5390 with the diluted Dollar but this may change. Growth numbers and Jobs Reports in the US will also impact market direction.

The KIWI continues to surge, looking to test the 0.8100 level, but will come under considerable pressure if the USD worm turns. The AUD has also benefited a resurgence after recent tests of the important 0.9000 levels. The AUD settled to close around 0.9250 and will look to the new week for short term directional drivers.

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